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Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation

Gregory Casey ()

MPRA Paper from University Library of Munich, Germany

Abstract: In the United States, rising energy efficiency, rather than the use of less carbon-intensive energy sources, has driven the decline in the carbon intensity of output. Thus, understanding how environmental policy will affect energy efficiency should be a primary concern for climate change mitigation. In this paper, I evaluate the effect of environmental taxes on energy use in the United States. To do so, I construct a putty-clay model of directed technical change that matches several key features of the data on U.S. energy use. The model builds upon the standard Cobb-Douglas approach used in climate change economics in two ways. First, it allows the elasticity of substitution between energy and non-energy inputs to differ in the short and long run. Second, it allows for endogenous and directed technical change. In the absence of climate policy, the new putty-clay model of directed technical change and the standard Cobb-Douglas approach have identical predictions for long-run energy use. The reactions to climate policies, however, differ substantially. In particular, the new putty-clay model of directed technical change suggests that a 6.9-fold energy tax in 2055 is necessary to achieve policy goals consistent with the 2016 Paris Agreement and that such a tax would lead to 6.8% lower consumption when compared to a world without taxes. By contrast, the standard Cobb-Douglas approach suggests that a 4.7-fold tax rate in 2055 is sufficient, which leads to a 2% decrease in consumption. Thus, compared to the standard approach, the new model predicts that greater taxation and more forgone consumption are necessary to achieve environmental policy goals.

Keywords: Energy; Climate Change; Directed Technical Change; Growth (search for similar items in EconPapers)
JEL-codes: H23 O30 O40 Q40 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff, nep-ene, nep-env and nep-reg
Date: 2017-01-24
References: View references in EconPapers View complete reference list from CitEc
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https://mpra.ub.uni-muenchen.de/76416/1/MPRA_paper_76416.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/80473/8/MPRA_paper_80473.pdf revised version (application/pdf)

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